How would an economy work if there were nothing useful to do?

Imagine you and a couple of hundred other people had washed up on a remote island, shut off from civilization through some contrivance of the kind one encounters only in thought experiments, or disappointing TV shows. After having accepted that the island will be everyone's home for the foreseeable future, all of you set to work doing the basic jobs that are necessary for survival. The daily business of subsistence living takes a lot of effort, and there is always something worthwhile for any given person to do. Several people go fishing every day. One hunts for crabs and other shellfish close to the shore. Some build shelter, splitting it into several tasks: a few people find the materials while others handle the actual assembly. At least twenty people engage in agriculture. Even those who have few skills can always gather firewood.

At first there's a quasi-military approach to survival, with everybody appointed a task by a small leadership group. Nobody complains; it's all for one and one for all. But after a few months have passed, a barter economy develops: rather than Dave bringing as many shellfish as he can find and sharing them out equally among the group, he offers them in exchange to others who will give him something in exchange that he deems to constitute a fair deal. Alice no longer fixes everybody's roof; she fixes the roofs of those people who pay her with firewood and fish.

It doesn't take long for a simple currency to be introduced. A few thousand shells are given unique number markings and used as coins. Counterfeiting shells is dealt with very harshly. After a while, some people - those whose goods and services are most in demand - have acquired more shells than others, and use them to acquire more goods than others. (Some of the in-demand people choose instead to work fewer hours to maintain a standard of living that they deem to be adequate, valuing free time more than possessions and services.) But everybody has something to do, and everybody can at least survive with the food, heat and shelter they earn through exchanging the fruits of their own labour with others.

A year passes. In an unexpected development, one of the islanders, Ted, spots a cargo canister with Japanese markings that has washed up on a beach. Excitedly, he spends several hours jemmying the container open. When the contents are revealed, Ted is amazed. There are twenty four humanoid robots inside - technology that is clearly cutting edge. However, after trying to get the robots working, it is clear that all but one of them is broken in some way. It might be possible to repair them - there are some basic tools and diagnostic devices accompanying each droid - but it will take some time. The single working unit, however, appears to be in perfect condition. Through examining the manual, Ted discovers that each robot is designed to learn any task taught to it by a human, and comes with a solar-powered recharging unit.

After teaching the robot several in-demand island jobs, Ted finds that he doesn't have to do any more manual labour at all.  While he sits in his deckchair sipping mango juice, his robot gathers firewood and fish, and builds new huts for other people, working quickly and indefatigably, getting much more done per day than Ted was ever able to manage. As the robot is officially Ted's, and working on his behalf, all of the things it builds, collects and provides are sold by Ted to the other islanders, in exchange for the things he wants. It's as though there were ten Teds where there used to be one, except that there is still only one Ted mouth to feed and one Ted who needs warmth and shelter. The total number of useful goods and services available in the island economy has increased, even though Ted himself is now sitting in a deckchair all day. The overall quality of life on the island has increased, although it's mainly Ted reaping the benefits, with a small trickle-down to others: the supply of firewood, fish and huts has increased, so these items cost slightly less than they used to.

Ted starts to think about the other damaged robots, which remain hidden in a dense copse near the cove where the goods container had washed up. Maybe he can repair one or two of them, with a little effort? Over the next few weeks he actually manages to get three of them working, and puts them to work just as he did with the first one, collecting firewood, fishing, and building huts. Again, the quantity of goods and services on the island increases. Again, the overall benefit is positive. Again, Ted enjoys most of the gains. Firewood, fish and huts are now in much greater supply than before, and therefore become considerably cheaper. For the islanders who were not collecting firewood, or fishing, or building huts, life has definitely become easier. However, the firewood collectors are starting to get nervous. A day's work can't be traded for nearly as much stuff as before: the supply of firewood coming from other sources has increased, and other islanders aren't willing to pay as much for any given bundle. On the other hand, the firewood gatherers find that a shell coin buys more fish than before, and huts are also cheaper. So there are gains and losses. Some of those whose trade has seen a drop-off in price start to move into other jobs. A couple of the fishers shift into agriculture. One of the hut builders starts building water features for people's gardens. One of the wood gatherers becomes an artist, another an actor. But some of them don't really have the skills to do anything else, so persist in their current low-paying jobs. For many islanders, their wages have decreased, but costs of many goods have also decreased (through increased supply), so although their relative share of the island's wealth has gone down, their level of absolute wealth remains more or less the same.

Now Ted repairs yet more robots, and starts to teach them how to do many of the other jobs on the island. Ted is confident that within a year he can have ALL the robots working, doing the jobs that used to be done by almost EVERYONE on the island: nearly all the jobs necessary for day-to-day survival.

Where is the island headed? And is its direction good or bad? Surely it has to be a good thing that the robots are adding cheap labour - FREE labour, in fact - to the island's economy? How can it be a bad thing to have servants who do most everyday jobs and ask nothing at all in return?

The island ought to be celebrating. But many of the islanders aren't happy at all. Lots of them no longer have anything to offer others in exchange for their goods and services. Whenever a wood gatherer returns at the end of the day to the kindling exchange, they now find that there are excess piles sitting there, having been gathered by Ted's robots. Firewood is so plentiful that there is no point in an individual gathering any more. This used to be the lowest-skilled job on the island, something that anybody could do even if they had nothing else to offer. Now this unskilled labour cannot be exchanged for anything.

What happens to the wood-gatherers? Are they left to starve to death, unable to trade anything for food? Is it really possible that Ted's robots, adding free labour, might manage to drive some of the islanders to death? Somebody might look after them, or they might scrape by gathering their own food. But their quality of life has actually gone DOWNHILL since Ted's robots arrived. The overall quantity of stuff on the island has gone up dramatically. With the menial jobs now covered easily, some people have become artists, or writers. Ted enjoys - and pays for - the luxuries that other people make, and some of the islanders aside from Ted earn enough to buy luxuries from each other. The mean quality of life has increased, but the median might not have. The distribution is so skewed that some people are now on the poverty line, some in danger of not getting by at all.

Of course, this makes Ted look like a villain, and also plain lucky, as he didn't make the robots himself. Ted isn't really a villain. He used a mixture of windfall inheritance and skill to provide something that the market demanded. People wanted firewood. People wanted fish. People wanted all the stuff they used to have before the robots arrived. Ted provided it to them. He didn't break the law. He didn't rip anyone off. His skill repaired and maintained the robots. He increased the volume of goods and services available in the economy.

But unemployment on the island is now running at 60%. Half the island has pretty much nothing to offer that anyone else is interested in: whatever this 60% can offer, the robots can do it quicker and cheaper. The 60% have to go so low in their payment demanded that it isn't worth their while.

The island council calls a crisis meeting. More than half the people in the community are fed up with Ted's robots, and are getting angry. Things might even get violent.

What should the council do? The free market has been left to run on the island, and has done its job, by providing a bounteous supply of goods and services. But the results weren't really what people had expected: the assumption had always been that every worker had something to offer. But in this era of automation, and cheap, plentiful labour that requires no payment at all, something seems to have gone wrong.

If every islander had a robot, or even if there was an allocation of one robot to every ten islanders, the place would be a potential paradise where everyone had large amounts of leisure time and the opportunity to pursue a path of what Maslow called self-actualization (the pursuit of one's dreams, in effect, once food, shelter and the other everyday needs had been dealt with). But wouldn't this be communism - the sharing out of Ted's wealth to others who had not earned it?

This starts a heated debate. In the age of automation, has Ted truly earned his wealth? Does the historical record of communism's failures still apply when individual motivation isn't really necessary anyway in order for work to get done? Does Adam Smith free-market capitalism still work when half the population can't offer anything that isn't already being created by machines for free?

Does the island end up with a better or a worse society if it lets Ted keep all the wealth generated by his robots?

It's not about red. It's not about blue. It's about green.

One of the most interesting aspects of the last three years has been observing the gradual change from a near-universal condemnation of the banking sector from the general public to a much more traditional, partisan debate based along conventional party political lines. In short, whereas for a time both left and right were united in their attacks on the power of Wall St and the City of London, after a while they reverted to type and turned on each other.

We should of course note that even to begin with, these groups weren't all angry about the same things or for the same reasons. The traditional socialist left abhorred the bankers as representing everything that was wrong with capitalism, as they saw it: the wealthy leveraging their money and power to exploit the working and middle classes. The libertarian right, by contrast, didn't acknowledge the finance sector as being true capitalism at all. On the contrary, they regarded the central banks with their fiat currencies as delivering a corrupt form of power that was nothing like the free market, but instead a kind of corporatist kleptocracy whose abuses were of a piece with the height of union power in the 1970s. (Charles Moore expresses this point of view in a recent article in the Telegraph.)

Of the two positions, I find the second the more coherent, but it's been illuminating to observe that those on the right and left have often ended up bickering with each other rather than trying to fight a common foe. Leftists frequently assume that those on the right must be their enemies, and must therefore be supporters of the finance sector. Going on the attack, they often alienate those with whom they might have found common ground on this issue. Meanwhile, those with a right wing bent often get drawn into defending the free market against the leftists and seemingly forgetting that a short while ago they had identified the modern finance sector as a classic example of a market that was NOT free. Thus confused about their primary enemy, they start treating some nebulous concept of socialist overspending as the cause of recent problems. Nowhere is this confusion more evident than in the case of the Tea Party in the USA. Originally conceived as an angry antithesis to the neocon wing of the Republican Party which had delivered billions of taxpayers' dollars to Wall St, and following the lead of anti-Fed constitutional fundamentalists such as Ron Paul and Peter Schiff, it was soon hijacked by the Koch brothers and Fox News, and convinced in large part that its main enemy was government spending on social programs. Bizarrely, it is now engaged in attacking Barack Obama for all the wrong reasons: instead of focusing on his cowardly deference to Wall St (described beautifully by Eliot Spitzer here), they are merely playing the tired old game of accusing him of being a socialist, something the mainstream Republican party could have done perfectly well by itself.

Part of the issue appears to be that those on the left and right regularly forget what their position is really about, and fall into the trap of attacking common markers of their true enemy rather than the enemy itself. Specifically, the left wing, which ought to focus on people becoming wealthy through corruption, monopoly, nepotism, exploitation and the denial of equal opportunity, often focuses lazily on wealth in and of itself. Meanwhile, the right wing assumes regularly that the only people who would complain about others getting wealthy through unjust means must be poor, and making their complaints only out of jealousy. Both of these analyses are misguided. Left wingers ought to recognize that it is possible to become very wealthy while enriching your fellow citizens at every step, the personal wealth being a just reward for the excellent goods or services generated. Similarly, right wingers ought to bear in mind that it is perfectly valid to resent a subset of the wealthy not simply because of their wealth but because of the manner in which they became wealthy. Getting rich by trying to build a monopoly that can extract wealth from the public by exploiting a power imbalance is entirely different from getting rich by creating a gadget or service that is enjoyed and bought willingly by millions of people. It's not where you are that's important; it's how you got there. And the argument is that the bankers, taken en bloc, have got there through unfair means. Attacking their wealth itself - their salaries and bonuses - is a red herring and a mistake. The issue is whether or not they have been able to accrue that wealth without providing goods and services commensurate with the rewards received.

The perils of ending a (financial) war too early

In order to build an argument about the aftermath of the 2008 financial crisis, I'm going to make a claim about the First World War that isn't one you tend to hear very frequently:

One of the biggest mistakes made in the First World War was that it was ended too early.

Okay, so how can any right-thinking person justify such a claim? Surely the earlier any war ends, the better? Edwin Starr himself assured us that war was good for absolutely nothing, and was friend only to the undertaker. Every extra day that a war continues is a day in which people can die, and it's probable that many will. So why might the continuation of WWI have been a good thing?

It's always dangerous to deal in counterfactuals, so some of what I am about to claim is bound to be contentious. Some historians will disagree with one or more of my inferences. But I'm reasonably confident that my suppositions are broadly correct.

Many people think that the "Great War" was nothing but a stalemate, a wasteful, static war bogged down in a quagmire with little chance of either side ever making a breakthrough and gaining significant territory. But in fact, one of the reasons that the Germans finally surrendered is that their opponents had demonstrated that such a breakthrough was imminent. The much-improved artillery pieces being used by the remaining Entente powers and their transatlantic allies, the devastating efficacy of the creeping barrage tactics and the ongoing increase in manpower had suddenly rendered the Germans' strategic position virtually untenable. Like a competent chess player realizing that the game is now unwinnable, the king was knocked over. Rather than going through the miserable motions of being forced back into Germany, with protracted losses of soldiers and civilians, the war was brought rapidly to an end, with the agreement of their opponents.

The interesting thing about what happened was that it look place without Germany's territory having ever been violated. Famously, the front line at the time of the armistice was deep inside France and not far from Paris itself. To an uninformed observer looking at the map, it must have seemed as though Germany were "winning the war" at that point. In fact, had the war been allowed to continue, the German lines would have collapsed, and the allies would have surged eastwards into Germany, just as she was invaded and placed under foreign control at the end of World War II.

My suggestion is that it was a tragic shame that this did not in fact happen. It allowed the German people to remain in a psychological state that was completely unlike that experienced in 1945. When Berlin was being policed by allied soldiers after the fall of the Third Reich, there could have been absolutely no doubt in the average German's mind that their leaders had failed the people utterly, had misled them, had brought them to ruin. There was a strong incentive for most Germans to try to dissociate themselves from the shattered Nazi regime, treat it as "other", examine its mistakes, humbly promise to do better and make amends, build a better Germany that would not be so arrogant and pugnacious. It's hard to cling to a sense of proud superiority when your state has been blasted to pieces and is at the mercy of those whom you'd previously considered your enemies and inferiors.

By contrast, very few Germans in 1919 would have taken such a psychological stance, because they had the freedom not to. No troops had marched through their capital. No tanks had driven through their countryside. The surrender when the front line had been inside another country seemed inexplicable. The German nation maintained an angry pride and searched instead for narratives of internal betrayal by a cowardly minority. An attitude of "invictus" remained strong in the public consciousness. And this helped sow the seeds of an even more destructive war two decades later, because the Germans nursed a sense of grievance and injustice, wanted that score settled, and still regarded the victorious allied powers as undeserving and inferior.

Something very similar has happened in the last few years with several of the top banks on Wall St and in the City of London. One has only to listen to Jamie Dimon of J.P Morgan, Lloyd Blankfein of Goldman Sachs and Bob Diamond of Barclays to understand that they regard their banks as "invictus" - unconquered, having required no government assistance and needing to apologize to nobody. Their territory was never violated. Others were to blame; they were not. There is no reason for them to change their ways.

When the central banks bailed out the banking system, they were focussed on ending the war as soon as possible to "save lives". Sadly, they did not seem to give much thought to the knock-on effects that might create an even bigger war in a decade or two. Hank Paulson and Gordon Brown bailed out several banks who were counterparties to Goldman et al. In particular, Paulson gave billions to AIG, who owed it to Goldman, Goldman having deliberately set AIG up as the "mark" in a multi-billion dollar sting using CDSs, as detailed in Michael Lewis's book The Big Short. Goldman received 100 cents on the dollar from AIG. Had AIG not been bailed out by Paulson and the Fed, they would have received next to nothing, and would have been in serious trouble. Indeed, the British and US governments ended up covering the counterparty risks of all the banks, who would have been in tremendous difficulty otherwise. Unfortunately, their actions allowed those banks to make the claim that they had not received a penny in government support. It's the way it looks to the uninformed: it's the equivalent of thinking that the territory map in 1918 tells the whole story. By looking to end the war too early, our governments have allowed the Invictus Myth to survive in the financial community. Their psychological outlook has not altered. They will not change their ways. And we will have another crisis on our hands before long.

How parasite industries may benefit governments

In a previous posting, I discussed how it was possible for certain individuals or companies to submit large sums in tax at the end of any given year without actually having contributed anything to the economy. If the government became aware of this, would it be motivated to act against it? The existence of antitrust laws and monopolies commissions suggests that governments view some rent-seeking as a bad thing. But there are forces that may push in the other direction, i.e. in favour of allowing such arrangements to continue.

Most obviously, there is the issue of lobbying carried out by the industries who are benefiting from rent-seeking. This may serve to persuade certain politicians to allow a situation to continue even though it is in fact bad for the voters represented by that public servant. Lobbying can take the form of de facto bribes, but also of propaganda, trying to convince the politician that the current setup is actually good for the general public. Some combination of these pressures can and do alter the decisions made by those in authority.

There is also one curious side-effect of parasite activities that tends not to be discussed. This is that it may have the effect of boosting the government's tax revenues, certainly in the short term. This is not an intuitively obvious outcome, so I'll outline an example situation that achieves this result.

Let's return to the example of the money-swiping licence granted to Jones in the previous post. Jones submits four billion in taxes at the end of the year despite doing nothing of value for the economy. What Jones DOES do, however, is to help increase the government's tax haul at the end of the year. But – wait a minute. I've said that Jones contributes nothing to the economy; I'm now saying that her activities boost tax revenues. Surely these two are incompatible? Surely if she genuinely boosts the tax take, this must in fact be a non-zero-sum game, with Jones serving as a bona fide asset to society? And yet this seems wrong, intuitively: all she's doing is swiping money, like a licenced thief. How can these both be true?

The answer is that Jones acts as an instrument for raising the level of general taxation through the back door. Let's imagine that everyone else in the country earns 100k a year, and they pay 25% tax on it. So everybody is paying 25k in tax a year to the government. But Jones manages to swipe 10k off most of them as well. So they pay 25k a year to the government, and 10k to Jones. Ah, but Jones pays 40% of all her takings to the government. So let's recalculate: everyone pays 29k to the government (25k + 4k via Jones) and 6k to Jones herself. The existence of Jones in the system allows the government to grab a 29% rate of tax from everybody instead of 25%. Crucially, the people don't realize they're paying extra tax to the government. They think they're paying only 25k to the state and 10k to Jones. Jones ends up as the focus of their resentment, and the government dodges the blame bullet. The state grabs an extra 4k from everybody, and the extra 6k from each of them is essentially an operating cost of covering the government's tracks and deflecting the blame. (Jones ends up with an immense level of personal wealth as a result of this 6k that is "lost" in every case.)

So there is a significant incentive for the government to allow Jones to keep her licence and keep swiping: it is economically inefficient, but it is politically convenient. An increase in tax revenue, but no increase in blame.

Of course, in the specific case of Jones and the swiping licence, the unfairness would be obvious to all, but it doesn't take a great deal of imagination to see how a de facto swiping licence could exist under the guise of legitimate business. Taking a huge chunk of money in one go always attracts attention, which is why any swiper worth their salt would instead do it through a process of salami slicing, nickel and diming the victim many, many times, ideally using automated processes. Good rent-seekers would tend to be sophisticated, well-organized and in the business of presenting their activities as an essential part of the economy. And the government may have little incentive to interfere if all it sees are increased tax revenues.

The suspicious allure of currency devaluation

On boards discussing economic matters I frequently read opinions expressing gratitude that the poster's currency has been devalued. It seems almost to be regarded as a universal good, a manoeuvre that every country would engage in as frequently as possible were it not for fear of tit-for-tat reprisals from other nations.

The key advantage, we're assured, is that it makes exports more competitive. If the US dollar is devalued, US goods will be cheaper, so more of them will be sold, increasing profits and boosting jobs. Champagne all around.

Yet if this chain of events represented such an unalloyed cause for celebration, each poster backing devaluation ought to be equally pleased if their boss were to announce a 5% cut in everybody's wages at their workplace on Monday morning. After all, the effects are equivalent: the wage costs are reduced, so the prices of the goods can be reduced. The company becomes more competitive, sells more goods and can stave off redundancies and/or expand its workforce. The only downside for each worker is the minor one of being paid less.

And being paid less is exactly what happens when your nominal wages stay the same but the currency is devalued. When sterling lost around a quarter of its real value over the course of the last three years, everyone on fixed wages in the UK took a 25% pay cut. Most of them simply didn't realize it.

Of course, it's slightly more complex than that. If a country's currency is devalued rapidly, some domestic prices will stay the same – nominally - for a while. I'm being paid 25% less, but so is Smith the baker, and Smith is charging 25% less – in real terms – for his bread, at least for now. But the cost of imports will rise, affecting many domestic prices, so in due course most people will start to feel as though they've each had a pay cut – which they have.

Our general inability to think of things in real terms (as opposed to nominal terms) is one of the reasons why devaluation is such a useful tool for business. It allows people to be given gradual real pay cuts (simply by not increasing their nominal salary over a period of time) without them complaining about it, whereas almost everybody would complain if a nominal pay cut were imposed upon them while the currency stayed stable. The two are broadly equivalent, but our brains just don't tend to work that way. And sometimes the ability to reduce your workers' wages is vital to keep your company in business. As for an individual business, so for the country as a whole.

But devaluation is also a useful tool for the financially sophisticated to gain a bigger slice of the pie: if you have the ability to lower the real wages of those around you without them noticing, while your real wages stay the same, you can outbid them for real assets and cement your economic (and perhaps political) control. Whilst we can each take refuge in defensive assets so that our savings resist the ravages of inflation, most of us have no direct or rapid control of our level of nominal income. Our incomes will probably move up to counterbalance currency devaluation given a little time, but in the meantime those who can boost their incomes immediately can take advantage of the lag. This is an example of the Cantillon Effect, whereby those who are closest to the source of a recent money supply expansion gain a significant advantage in buying up the real wealth in the economy.

So remember: every time you hear that your currency's value is dropping, and you listen to the celebratory voices of many of those in the business community, keep in mind the fact that you've just been handed a pay cut.

Are taxes paid proof of contribution made?

One of the standard arguments that is wheeled out every time reform of the finance sector is discussed takes the following form:

We can't risk reforming the finance sector too dramatically: if the banks decide to relocate elsewhere, they will take their enormous tax contributions with them, and we'll have shot ourselves in the foot.

In other words, we may not like the vast riches that bankers award themselves, but we'd be silly to kill the goose that lays the golden eggs: sure, they get paid a lot, and that might make us jealous, but they also contribute a lot, and for that we ought to be grateful. (It's often pointed out that this is the theme of Ayn Rand's Atlas Shrugged: John Galt and his Nietzschian supermen - the wealth creators - grow weary of the parasitic and jealous citizens of more modest talents, and so withdraw from mainstream society to "Galt's Gulch", leaving the jealous masses to consider the consequences of having driven off the greatest contributors to society.)

Here's Jeremy Warner writing recently in The Daily Telegraph:

"Once the myriad business services, IT and other support staff that ride on finance's back are accounted for, the City is responsible for rather more than 20pc of tax revenues. The economy would be in a state of ruin without it."

How valid is Warner's claim? It seems to be a compelling argument at first, especially when applied (as here) to the UK. Take away the finance sector, and you lose a whopping 20% of the current tax base.

The only problem with Warner's conclusion is that it is completely unsubstantiated. He makes one critical (tacit) assumption in the process of arriving at that conclusion: that the finance sector is generating non-zero-sum wealth. In other words, he is assuming that the banks generate wealth that would simply not be there without their presence. But this may or may not be the case. I'm going to argue that Warner's argument lacks rigour and is invalid in its current form.

Let me start off by describing an extreme situation in which somebody can pay huge taxes while contributing nothing at all to the economy, then we'll move on to something a little more realistic, and finally ponder where the banks sit along the spectrum of usefulness versus parasitism.

An extreme example: legalized appropriation

Let's imagine that your country's government has a strange brainwave and decides to allocate a special licence to one individual in the country, at random. The terms of the licence allow its holder to stop anybody they like on the street and demand a payment of ten thousand dollars (/pounds/euros etc) from them, to be paid by the end of the month. The money so taken is treated as income, and is subject to taxation. Because it's so easy to make large sums of money this way, almost all of it falls into the country's highest taxation bracket, which I'll say is 40%.

The licence is given (after a lottery) to somebody called Jones. At the end of the first year following its introduction, Jones has acquired a vast sum of money: let's say that it's ten billion dollars. (Note as an aside that Jones works hard every day to make this sum: she accosts nearly three thousand people a day, powering away like a trojan. Jones is by no means lazy.) Jones therefore pays almost four billion dollars in tax to the government: a huge sum, by anybody's standards.

But what contribution is Jones actually making to the economy?  She can point to the huge level of tax she's paid, and make the claim that she has funded hospitals, schools, the armed forces...surely her four billion dollars powers the economy, making life easier for other people? When it's suggested that Jones has been given unfair powers to acquire money, and that the terms of the licence should be changed, or that she should be taxed more heavily, she makes this counterargument:

If you try to make it harder for me to maintain my current level of income, I will leave the country, taking my tax dollars with me. Indulge your jealousy if you like, but if you drive me away, you will face a loss of four billion dollars from your tax base. Do you really think this is a good idea?

To somebody who didn't understand what Jones was doing to acquire her income, and who only saw the levels of taxation that she contributed, this would be an intuitively plausible argument: Jones pays four billion in tax! That helps our economy! Yet what is Jones's actual contribution?

It's zero.

Jones makes no contribution whatsoever. She simply moves money around. It's the other people in the economy who generate the wealth; she just skims it off. She's able to operate as a parasite. The taxes she paid were earned by others, but the licence allows a situation where somebody examining the ledger at the treasury would think that it was her who had earned the money and made the contribution.

Note, by the way, that it isn't being rich that makes her a parasite. It's the manner in which she acquired the riches that is parasitic. By contrast, the likes of Steve Jobs and Ingvar Kamprad are not parasites. They create real goods and services that people/companies/governments want. Even venture capitalists, who do not create goods and services themselves but facilitate others to do so, are not parasites: they are proto-wealth generators. By contrast, Jones is able to get rich without creating or facilitating any goods or services demanded by the market.

A less extreme example: monopoly

It's not especially likely that any of our governments are going to hand out licences for individuals or companies to take money off others with nothing in return. It seems to offer them no advantages (although I'm going to suggest in a later blog post that this is not necessarily the case), and the public would be able to see clearly how unfair the setup was. But there are ways that economic agents can gain powers that are broadly equivalent to a licenced cash-swiper. Specifically, if an agent is able to extract economic rents, it has the power to charge - and receive - more money for a good or service than it ought to be able to able to in a free and fair market. An obvious example of this is a monopoly: if an agent can prevent rivals from entering a market for a desirable good, it can charge excessively for that good. This ends up being the equivalent of the swiping licence, which is one of the reasons why monopolies are discouraged by government laws and regulations. (In general, good government discourages any activity that allows somebody to get rich without providing anything useful in return. The Chicago economist Gary S. Becker once asserted that the single best reason to discourage theft is that it is inefficient: it requires effort on the part of the thief, yet no value is added to the economy.)

If contributing huge tax receipts was by itself deemed to be proof of the economic value of any given company, monopolies would be encouraged rather than discouraged. After all, a company that has a monopoly will be making much greater tax contributions than one that is not allowed to maintain monopoly powers.

Am I saying that all bankers are de facto thieves?

No. I should make it very clear that I'm not. What I'm arguing here is simply that pointing to the taxes submitted by any individual or corporation at the end of the financial year does not by itself demonstrate that those agents are making a valuable contribution and that the economy would suffer if they stopped doing what they were doing (or moved elsewhere to do it). The licenced money-swiper and the monopolist in our two examples make huge tax contributions, but we can see that their real contribution is zero (or very low). So playing the tax receipts card is an invalid move; you need to do more work than that to show that the entity in question is an asset to the economy. When Warner assents dumbly in response to the finance sector's threats to leave, he's falling for a fallacious argument, and discouraging proper investigation of the matter. 

But do I happen to think that banks are de facto thieves/monopolists? The answer to that question is not pertinent to the argument here. I'll leave that to you to decide for yourself, but most importantly, I hope that you'll recognize that it is a question worth asking.